Investors have been trading in the agriculture space for many many years and prior to the industrial revolution, agricultural futures is where commodity trading first got its start, as these contracts allowed farmers to offset any losses in crop yields. Nowadays there are tons of options for investors to, quite literally, invest in the future, as the world seeks to feed a growing population on less and less land.
The Food and Agriculture Organization of the United Nations (FAO), a group that’s main focus is achieving global food security and eliminating hunger and poverty, believes that agriculture investing is one of the most important and effective strategies for both economic growth and poverty reduction. The FAO also said that areas around the world where hunger and poverty are most widespread have seen “stagnant or declining rates of agricultural investment in agriculture over the past three decades.”
The organization also stressed the need for more investment in the agricultural space for rural development and estimated an additional US$83 billion would need to be invested annually in order to close the gap between between what low- and middle-income countries have invested each year over the last decade and what is needed by 2050.
How to invest in agriculture
As mentioned, the amount of arable land per person continues to shrink while the population grows and at the same time finding water sources has also become a worldwide issue, meaning the cost of food will likely continue to go up as well. Considering this, investors could greatly benefit from this by investing in fertilizers, farming equipment, seed companies and chemical producers, according to Ravi Sood, president of Lawrence Asset Management.
But it’s not just those mentioned that can offer investment opportunity, there are so many avenues investors can look to in the agricultural space. For example, starting from the source and investing in the producers that grow the crops and raise the livestock or the companies that provide the farming equipment to the producers. Or an investor can instead look to put money towards one of the many agribusinesses out there – companies that essentially generate half of their revenue directly or indirectly from agriculture. An example of an agribusiness would be a potash or phosphate company who mines the products that are in turn used to fertilize crops.
Besides a variety of companies and niches within the agricultural sector, there are also different ways to invest: through futures, stocks and exchange-traded funds (ETFs). The futures market is the tried and true of the three and offer an easy way for investors to play price changes in agricultural products. However, Investopedia noted that futures may seem a little intimidating for beginners and suggested those interested in going this route should study historical price movements and learn about the market. When it comes to investing in stocks, there are a ton of options, although many of the companies in this area have consolidated and therefore the bulk of them are quite large companies that have global reach. Then there is the option to invest in ETFs, which offer a chance to spread commodities to different investors which in turn, help lower the risks. Agriculture ETFs are either made up of a collection of agricultural stocks or a collection of futures contracts that are commodity specific, both of which allow for broader investment.